J&J Not Sold on Guidant

PHILADELPHIA – Johnson & Johnson (JNJ) on Wednesday said it may not complete its $25.4 billion purchase of Guidant Corp. (GDT), saying the recall of products at the medical device maker had hurt the value of the company.

The Federal Trade Commission (search) on Wednesday approved the deal on the condition that Johnson & Johnson meet several conditions, including licensing a key stent delivery technology to Abbott Laboratories Inc. (ABT)

J&J said it has had negotiations with Guidant about restructuring of the terms of the transaction, but failed to reach an agreement. J&J said it cannot assure that talks will resume or whether the two companies will agree on new terms that will allow it to complete the acquisition.

Guidant could not be immediately reached for comment.

Shares of Guidant dropped to a 14-month low on the news. The stock shed $3.20, or 5.1 percent, to $59.90 on the New York Stock Exchange. Shares of J&J were down 20 cents, or 0.3 percent, at $61.70, also on the NYSE.

J&J had wanted Guidant to expand its medical device business to offset shrinking sales of prescription drugs — until recently J&J's strongest driver of earnings growth — due to competition from cheaper generics.

"If this (deal) doesn't go, we'll need to reevaluate J&J and their growth platform," said John Farrall, an analyst with National City Private Client Group, which holds 27,000 Guidant shares and 2.7 million shares of J&J.

Still, the drug and consumer products giant said it has been trying to renegotiate the deal because it believes Guidant's short-term and long-term growth outlook has been damaged by the product recalls.

The recalls of Guidant's implantable heart devices earlier this year have had a "material adverse affect" on Guidant, J&J said. Last week, Guidant said it had received a Justice Department subpoena concerning some of those recalled heart devices.

"What happens next? Who knows? If all the options are open, now would be the time for J&J to talk to Guidant about what its desires are," said A.G. Edwards analyst Jan Wald (search).

According to the terms of their merger agreement, J&J has 48 hours following FTC approval to consummate the deal.